Ringgit Gains on Optimism Power Price Increase Will Cut Deficit

Malaysia’s ringgit climbed the most in five weeks on optimism the first electricity price increase in two years will help rein in the government’s budget deficit. Sovereign bonds retreated.

Tenaga Nasional Bhd., the state-owned power distributor, will raise prices by an average of 15 percent in Peninsular Malaysia to 38.53 sen per kilowatt hour from Jan. 1, Maximus Johnity Ongkili, minister of energy, green technology and water, told reporters in Kuala Lumpur today. The currency was also supported by data from China, Malaysia’s biggest export market, showing manufacturing growth beat economists’ forecasts.

“The electricity tariff increase is a positive in terms of fiscal improvement,” said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd. in Singapore. There is also “a positive China data story,” he said.

The ringgit strengthened 0.5 percent, the biggest gain since Oct. 28, to close at 3.2090 per dollar in Kuala Lumpur, according to data compiled by Bloomberg. It reached 3.2050 earlier, the highest level since Nov. 22. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed three basis points to 8.34 percent.

Rating Outlook

Prime Minister Najib Razak scrapped sugar subsidies in his October budget and raised gasoline prices in September to shrink the deficit to 3.5 percent of gross domestic product next year from a 4 percent target in 2013. His administration will also implement a goods and services tax of 6 percent in April 2015.

Fitch Ratings lowered the nation’s credit-rating outlook to negative from stable in July, citing rising debt levels and a lack of budgetary reform.

The yield on Malaysia’s 3.26 percent sovereign notes due March 2018 advanced one basis point, or 0.01 percentage point, to 3.63 percent, according to data compiled by Bloomberg.

China’s Purchasing Managers’ Index was 51.4 in November, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported yesterday, exceeding 24 out of 26 estimates in a Bloomberg News survey. A separate gauge from HSBC Holdings Plc and Markit Economics today was at 50.8, topping all 13 analysts’ projections. Numbers above 50 signal expansion.

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